In currency trading, the euro stood firm against the dollar after surging on Friday in reaction to healthy economic data, including a gauge of the German business climate hitting an all-time high in November, despite political uncertainty.
There are also hopes Merkel can hammer out a deal to form a new government for Europe’s biggest economy.
The Social Democrats said they were ready to hold talks with the chancellor, who is facing pressure to reach an agreement to end weeks of turmoil.
The euro plunged last week after talks to form a new government with the pro-business Free Democrats (FDP) and the left-leaning Greens broke down, raising the prospect of fresh elections.
Adding to the upbeat euro sentiment was last week’s dovish Federal Reserve minutes that have led some traders to lower their expectations for the pace of US interest rate hikes, while the European Central Bank is looking more bullish.
“Too many positive developments to ignore suggests the market will set sights on the $1.2000 level,” Stephen Innes, head of Trading APAC at OANDA, said in a commentary.
“The market continues to underprice the ECB risk, but with the recent string of uproarious EU economic data, surely this will be too difficult for the ECB to ignore and at minimum moderate their lower for longer stance in spite of inflation undershooting expectations ”